As Congress criticized Wall Street for the proliferation of risky derivatives investments and short-selling practices in recent years, some lawmakers privately made highly speculative investments in derivatives funds that sometimes aimed to profit from a decline in the overall performance of the stock market or Treasury bonds, congressional financial disclosure forms show.

The investments underscore the potential conflicts on Capitol Hill between public policy and personal investments that have accompanied a sharp rise in stock market investing by lawmakers during the last two decades. The investments also illustrate the wide latitude lawmakers provide themselves under their ethics code to make investments that might be discouraged under stricter rules they have mandated for officials in other parts of the federal government.

The potential conflicts created by risky congressional investing have become more compelling this spring, as Congress pushes to overhaul financial regulations that would curb the use of derivatives and speculation by the nation’s largest investment banks, while creating more transparency of derivatives contracts.

In 2008, for instance, 17 lawmakers reported investing hundreds of thousands of dollars in highly volatile short-selling funds -- known as “leveraged shorts” -- that are aimed at generating $2 in profit for every $1 in decline of a stock index or Treasury bill. Such funds, which rely on derivatives contracts, came under scrutiny by officials at the Securities and Exchange Commission and other federal regulators, who worry that the funds are being marketed to casual investors when they’re intended to be used by professionals and institutions.

Sen. Johnny Isakson (R-Ga.) is among those who have disclosed such investments. He has spoken out against naked short selling. In October 2008, as the financial meltdown was underway, Isakson had between $30,000 and $100,000 invested in a short-selling fund linked to the decline in Treasury bills, called ProShares UltraShort.

The Wall Street Journal reported on those holdings yesterday in a story about 13 lawmakers who had short-selling investments. Both the Journal and The Post relied on disclosure documents assembled by the Center for Responsive Politics.

Isakson said the investment was made for him by a broker at SmithBarney. He said it was a hedge and part of a larger strategy, not a “naked short” sale of the sort he and others have tried to curb. “I have a managed account,” he said.

Earlier in 2008, Sen. Thad Cochran (R-Miss.) bought up to $180,000 worth of short investments through ProShares funds keyed to the decline of the Dow and S&P 500 indices, documents show. Cochran spokesman Chris Gallegos said the lawmaker also did not control his investments. “All his investments are handled by outside professionals,” he said.

Rep. Shelley Berkley (D-Nev.) also reported investments in 2008 of several thousand dollars in a variety of leveraged short-selling funds keyed to the decline of the S&P 500-stock index and the prices of oil and gas, among other things. Her spokesman, David Cherry, said the investments were her husband’s and had been managed by a professional adviser. “Neither one of them directs what trades are made by the broker,” Cherry said. “He’s given carte blanche to do whatever he wants.”

Cherry took issue with having his boss singled out when many lawmakers invest. He said one of the couple’s accounts that included those investments had shed a quarter of its value since 2007. “Where is the smoking gun?” he said. “Where is the ‘there’ there?”

Tristan Yates, a financial analyst and author of an investment book called “Enhanced Indexing Strategies,” said that bearish investments that profit from the decline of the markets or economy have a place, but not in Congress, where lawmakers are expected to boost the commonweal.

“There’s responsibility that lawmakers have to prevent problems from occurring,” Yates said. “If you have a lawmaker that’s not only identifying those problems but appearing to trade on them, that’s not right.”